Budget 2018: A case study on GST collections

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One of the major concerns for surrounding the Budget will be the collection of tax after the implementation of GST during the year. GST was implemented with an intention to increase tax compliance along with erasing duplicity of taxes across states. In the July-December period, GST tax collections have been steadily falling, widening fiscal deficit.

If the GST collection rates continue to drop, the government might be prompted to announce additional government borrowing of a similar amount. Hence, we take a look at the case study of Malaysia – the last country to implement GST before India.

Brokerage Edelweiss has done a case study on India’s GST. Following are the snapshot of the study:

What happened to GST tax collections in Malaysia?

  • The Malaysian government took 1.5 years to prepare for the GST implementation.
  • After a year of its implementation, GST registrants exceeded the target of 412,000 by over 20%.
  • The Malaysian government also improved its audit track by using undercover tax officers and made it very difficult to do business unless registered.
  • In spite of having large number of SMEs (97%), the transition has been accepted.
  • GST equivalent collection which was about 12% of total government revenue grew to 19.4% of the revenue after 1 year of implementation.
  • We expect India’s GST Tax collections to rise next year on account of fewer technical glitches and smoother transformation.

Lessons which India should learn from Malaysia:

  • GST tax compliance is 90% in Malaysia as against 64% in India
  • Inspite of having a large number of SME enterprises (97%), the transition to GST was successful
  • Better technological preparedness to adopt to new tax system


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